The benchmark index measuring stock volatility has dropped to a 16-month low, showing investors are comfortable with the stock market rally.
The Chicago Board Options Exchange Volatility Index (VIX) has dipped to about 19.5.
VIX, commonly known as the fear index, represents the price of using options as insurance against a drop in the Standard & Poor’s 500 Index.
The S&P has soared 68 percent from its March low, the strongest rally in more than 70 years. If investors were worried about a market reversal, they would be bidding the VIX higher.
“The year-end equity rally is prompting investors to lower their level of fear for next year’s market performance,” Andrew Wilkinson, senior market analyst at Interactive Brokers Group, wrote in a note obtained by Bloomberg.
The VIX’s decline represents a sharp about-face from its record close of 80.86 just 13 months ago.
“With the market hardly moving, there’s really no reason for the VIX to be above 20,” Jeremy Wien, a VIX options trader at Societe Generale, told Bloomberg. “Given the market moves of the last few months it was only a matter of time.”
Many experts predict the bull market will continue into next year. “The market is more likely to increase in value next year than decrease,” Byron Wien, vice chairman of BlackRock told The New York Times.
“It won’t go up in a straight line, but I expect it will go up for several years.”
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